Which contributes more to the GDP- the production of an economy car or production of A luxury car?Why?

Answer 1

The question cannot be answered as asked. Production only contributes to the GDP as long as the products being made are sold. Assuming that both cars were sold, the luxury one probably made a greater contribution to GDP. GDP can be thought of as total value-added delivered to consumers in a given year. Value-added is the sum of all wages and profits. Since there was likely more work that went into the luxury car (and margins in the automotive business are slim, so profits are unlikely to make a big difference), the luxury car is more likely to have made a greater contribution to GDP.

Answer 2

The people saying that production doesn't count toward GDP, only sales are incorrect.

GDP is Consumption + Investment + Government Spending + Net Exports.

It is true that to count toward the consumption number, the car actually needs to be purchased.

However, unpurchased cars still count as inventory investment, and would instead fall to the Investment number.


To answer your question, an individual luxury car would count more than an individual economy car; but keep in mind there are more economy cars produced.

Answer 3

Unforunately, GDP is one of the greatest mystery why it is part of economics theory... it is accounting!!

GDP is calculated by dollar values, not economics values.

In this case, the luxury car contributes more because it's much more expensive --- though from an ecnomist point of view, it is less valueable to the rich man who buys this car (for collection purpose), then the normal guy who buy the economy car (use for transportation).